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New Keynesian Economics

oleh

Bambang JuandaDepartemen Ilmu Ekonomi

Fakultas Ekonomi dan Manajemen IPB

https://bambangjuanda.com/

The Impact of this change in AD

on output and inflation depends

on the AS curve. If it is vertical,

only inflation increase. If it is

horizontal, only output increase.

And if it is upward-sloping but

not vertical, both output and

inflation increase

Fig 5.6 The Effects of an

Increase in Gov’t Purchases

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Klasik: ASLong-run

ASShort-run (Keynes)

ASNew (Classical, Keynes)

ᴨ’

ᴨ

Yn

Review

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New Keynesian economics is a school of macroeconomics that strives to

provide microeconomic foundations for Keynesian economics. It developed partly as a

response to criticisms of Keynesian macroeconomics by adherents of new classical

macroeconomics.Two main assumptions define the New Keynesian approach to macroeconomics. Like the New

Classical approach, New Keynesian macroeconomic analysis usually assumes that households and firms have rational expectations. However, the two schools differ in that New Keynesian analysis usually assumes a variety of market failures. In particular, New Keynesians assume that there is imperfect competition in price and wage setting to help explain why prices and wages can become "sticky", which means they do not adjust instantaneously to changes in economic conditions.

Wage and price stickiness, and the other market failures present in New Keynesian models, imply that the economy may fail to attain full employment. Therefore, New Keynesians argue that macroeconomic stabilization by the government (using fiscal policy) and the central bank (using monetary policy) can lead to a more efficient macroeconomic outcome than a laissez faire policy would.

New Keynesianism became a part of the new neoclassical synthesis, which incorporated parts of both it and new classical macroeconomics and forms the theoretical basis of much of mainstream economics today.

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Para Ekonom New Keynesian percaya bahwa model “market clearing” tidak dapat menjelaskan fluktuasi ekonomi dalam jangkapendek, karena upah dan harga bersifat rigid (kaku)

Fischer dan Taylor: fakta bahwa upah atau harga ditentukan dengankontrak secara periodik

Implikasinya akan berdampak pada penyesuaian terjadi secarabertahap dari tingkat harga terhadap nominal disturbance.

Salah satu alasan harga tidak segera menyesuaikan untuk market clearing karena penyesuaian harga membutuhkan biaya penyesuaian(menu cost)

Menu cost : biaya yang dikeluarkan perusahaan untuk updating, seperti mencetak menu baru, daftar harga, brosur dan berbagaikeperluan lain ketika harga berubah

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A Representative Firms Incentive to Change its Price in Response to Fall in Aggregate Output

MC

D

D’

MRMR’

A

B

C

P

Quantity

Kapan Perusahaan Merubah Harga

Awalnya perekonomian di keseimbangan A. Perusahaan memaksimisasi keuntungan ketika MR=MC.

Jika terjadi penurunan AD dan harga-harga lainnya tidak berubah maka mengurangi agregat output dan kemudian menggeser kurva demand yang dihadapi perusahaan

MR bergeser ke MR’ (menurun) sementara MC tetap

Jika perusahaan tidak mengubah harganya, maka output ditentukan oleh permintaan pada titik B.

Pada tingkat output tersebut, MR > MC, dan dengan demikian perusahaan punya insentif untuk menurunkan harga dan meningkatkan output

Jika perusahaan mengubah harganya, maka MR’=MC, sehingga tingkat output dan harga berada pada titik C

Daerah yang diarsir menunjukkan tambahan keuntungan yang diperoleh karena pengurangan harga dan peningkatan jumlah produksi.

Perusahaan tertahan pada harga yang lama, jika luas daerah tambahan keuntungan tersebut haruslah kecil, sehingga perusahaan tidak punya insentif untuk mengubah harga (adanya AD externality)

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Coordination failure was another important new Keynesian concept developed as another

potential explanation for recessions and unemployment. In recessions a factory can go idle

even though there are people willing to work in it, and people willing to buy its production if they

had jobs. In such a scenario, economic downturns appear to be the result of coordination

failure: The invisible hand fails to coordinate the usual, optimal, flow of production and

consumption.

Paper Coordinating Coordination Failures in Keynesian Models expressed a general form of

coordination as models with multiple equilibria where agents could coordinate to improve (or at

least not harm) each of their respective situations (Cooper & John,1988).

In Diamond's coconut model (1982) producers are more likely to produce if they see others

producing. The increase in possible trading partners increases the likelihood of a given

producer finding someone to trade with. As in other cases of coordination failure, Diamond's

model has multiple equilibria, and the welfare of one agent is dependent on the decisions of

others. Diamond's model is an example of a "thick-market externality" that causes markets to

function better when more people and firms participate in them.

Other potential sources of coordination failure include self-fulfilling prophecies. If a firm

anticipates a fall in demand, they might cut back on hiring. A lack of job vacancies might worry

workers who then cut back on their consumption. This fall in demand meets the firm's expectations, but it is entirely due to the firm's own actions

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In this model of coordination

failure, a representative firm

ei makes its output decisions based

on the average output of all firms

(ē). When the representative firm

produces as much as the average

firm (ei=ē), the economy is at an

equilibrium represented by the 45

degree line. The decision curve

intersects with the equilibrium line

at three equilibrium points. The

firms could coordinate and produce

at the optimal level of point B, but,

without coordination, firms might

produce at a less efficient

equilibrium

Ilustrasi Coordination Failure

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Keputusan yang diharapkan oleh lembaga lain (misalnya tingkat investasi rata-rata)

Kep

utu

san

pri

bad

iyan

g ra

sio

nal

/op

tim

al (

mis

aln

yati

ngk

atin

vest

asii

nd

ivid

u)

Y1

D1 D2 D3

Ekuilibria Jamak

Kemungkinan gagalnya koordinasi akan mengarah ke keseimbangan yang underemployment; yang berarti output berada dalam kondisi dibawah & tidak efisien karena setiap orang percaya bahwa hal tersebut akan terjadi.

Dalam kondisi demikian, tidak ada sumber yang mendorong perekonomian bertahan pada output yang normal. Sebagai hasilnya, ada ruang bagi kebijakan pemerintah untuk mengkoordinasikan ekspektasi sehingga menuju pada keseimbangan output yang tinggi. Sebagai contoh, stimulus temporer mungkin secara permanen akan menggerakan ekonomi kepada keseimbangan yang lebih baik

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The idea of the efficiency wage theory is that increasing wages can lead to

increased labour productivity because workers feel more motivated to work

with higher pay. Therefore if firms increase wages – some or all of the higher

wage costs will be recouped through increased staff retention and higher

labour productivity.

Economists call the theories that link the productivity or the efficiency of workers

to the wage they are paid.

Efficiency Wage Theory

These theories also suggest that wages depend on both the nature of the job

and on labor-market conditions:

Firms that see employee morale and commitment as essential to the quality

of their work, will pay more than firms in sectors where workers’ activities are

more routine.

Labor market conditions will affect the wage.

Perkembangan Output akibat peningkatan AD dan/atau AS

Y=F(K,L,Tek..)

IS: Y=C(Y-T)+I(Y,i)+G+(X-M)

W P F u ze ( , )

P W ( )1

LM relation: M

P YL i( )

Misal Y = A.N = NL = N + UU = L - N

P P FY

Lze

( ) ,1 1

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Y YM

PG T

, ,

- +

+ + -

Sumber: Blanchard (2017)

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The Effects of a Monetary Expansion

The Dynamics of Adjustment

A monetary expansion leads to

an increase in output in the

short run but has no effect on

output in the medium run.

The Dynamic Effects of

a Monetary Expansion

Figure

The difference between Y and

Yn sets in motion the adjustment

of price expectations.

In the medium run, the AS curve

shifts to AS’’ and the economy

returns to equilibrium at Yn.

The increase in prices is

proportional to the increase in

the nominal money stock.

(P↗> Pe) Pe↗ (AS ke atas) W↗ P↗

Ps Uang & Barang:Ms↗ & P↗ proporsional

Y tetap i ?

IS relation: Y C Y T I Y i G( ) ( , )

LM relation: M

P YL i( )

W P F u ze ( , ) P W ( )1

Romer:

medium run = long run

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The Effects of a Monetary Expansion

Going Behind the Scenes

The impact of a monetary

expansion on the interest rate

can be illustrated by the IS-LM

model.

The short-run effect of the

monetary expansion is to shift

the LM curve down. The

interest rate is lower, output is

higher.

If the price level did not

increase, the shift in the LM

curve would be larger—to LM’’.

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In the short run, a monetary expansion leads to an

increase in output, a decrease in the interest rate, and

an increase in the price level.

In the medium run, the increase in nominal money is

reflected entirely in a proportional increase in the price

level. The increase in nominal money has no effect on

output or on the interest rate.

The neutrality of money in the medium run does not mean

that monetary policy cannot or should not be used to affect

output.

The Effects of a Monetary Expansion

The Neutrality of Money

Romer:

medium run = long run

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A Decrease in the Budget Deficit

A decrease in the budget deficit

leads initially to a decrease in

output. Over time, however,

output returns to the natural

level of output.

The Dynamic Effects of

a Decrease in the

Budget Deficit

Figure

Romer:

medium run = long run

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A Decrease in the Budget Deficit

Deficit Reduction, Output,

and the Interest Rate

Since the price level declines

in response to the decrease in

output, the real money stock

increases. This causes a shift

of the LM curve to LM’.

Both output and the interest

rate are lower than before the

fiscal contraction.

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A Decrease in the Budget Deficit

Deficit Reduction, Output,

and the Interest Rate

A deficit reduction leads in the

short run to a decrease in

output and to a decrease in the

interest rate. In the medium

run, output returns to its natural

level, while the interest rate

declines further.

The Dynamic Effects of

a Decrease in the

Budget Deficit on Output

and the Interest Rate

Figure

Romer:

medium run = long run